- Favorable oil prices and continued fiscal reforms are expected to maintain fiscal and external balances in comfortable positions over the medium term.
- The authorities have made decisive strides in the structural agenda under Oman's Vision 2040 and continued implementation will help diversify the Omani economy and boost prospects for strong, inclusive, and green non-hydrocarbon growth.
- The banking sector remains sound, with ample capital and liquidity buffers and strong asset quality.
Washington, DC: A staff team from the International Monetary Fund (IMF), led by Mr. Cesar Serra, visited Muscat, Oman, during June 6-14, 2023 to discuss economic and financial developments, the outlook, and the country's policy and reform priorities. At the conclusion of the mission, Mr. Serra issued the following statement:
"Oman's economy continues to grow, and inflation is contained at low levels. Real GDP grew by 4.3 percent in 2022, primarily driven by a strong expansion of the hydrocarbon sector. Economic growth is, however, projected to slow down to 1.3 percent in 2023 and then rebound to 2.7 percent in 2024, reflecting oil production cuts by OPEC+ and moderate growth in the non-hydrocarbon sector due to recovering but still subdued construction activity, a slowdown in global economic activity, and tighter financial conditions. Nevertheless, non-hydrocarbon growth is projected to rise to 2 percent in 2023 and 2.5 percent in 2024, from 1.2 percent in 2022. Headline inflation eased from 2.8 percent (year-over-year) in 2022 to 1.1 percent by April 2023 (year-over-year), reflecting lower food inflation and a stronger US dollar.
"Substantial oil windfalls and fiscal consolidation have boosted fiscal and external positions.The fiscal balance reached a surplus of 7.5 percent of GDP in 2022 and is expected to remain in surplus over the medium term on the back of favorable oil revenues and fiscal measures under the authorities' Medium-Term Fiscal Plan. Alongside, central government debt as a share of GDP declined significantly from 61.3 percent in 2021 to 40 percent in 2022, as the authorities used the oil windfall to repay government debt. State-owned enterprises (SOEs) debt as a share of GDP declined from 40.7 percent in 2021 to 28.8 percent in 2022, on the back of asset divestments, improved performance, and debt repayments, with risks mitigated by substantial assets under Oman Investment Authority's management and ongoing reforms in the sector. Buoyed by oil and non-oil exports, the current account in 2022 recorded its first surplus since 2014, at 5.2 percent of GDP, and is projected to remain in surplus over the medium term. Gross international reserves held by the Central Bank of Oman stood at $17.6 billion in 2022 (4.7 months of prospective imports).
"The banking sector remains sound. Profitability has recovered from pandemic lows. Banks display ample capital and liquidity buffers. Asset quality remains strong while credit to the private sector continues to expand.
"The near- to medium-term outlook is favorable and risks to the outlook are balanced. On the upside, growth and fiscal and external positions would be spurred by accelerated production at the Duqm refinery project and by another surge of oil prices—that could be triggered by supply and demand imbalances—, an acceleration of Vision 2040 reform plans, and a rise in foreign direct investments from regional partners. On the downside, a sharp decline in oil prices—due to a severe and protracted global economic slowdown—, lower demand for hydrocarbons—due to a faster-than-expected global energy transition—, and pressures to spend the oil windfall represent key risks to the outlook.
"Going forward, the authorities' structural agenda under Oman's Vision 2040 will support stronger, private sector-led, job-rich non-hydrocarbon growth while entrenching fiscal and external sustainability. Priority areas include allowing forgreater labor market flexibility, enhancing social protection and insurance, improving tax collection efficiency, strengthening medium-term fiscal frameworks, enhancing the performance and transparency of the SOE sector, creating an investor-friendly business environment, accelerating the pace of digitalization, developing the financial sector, and investing in green energy to help address climate challenges and leverage the global energy transition.
"The IMF staff team would like to thank the Omani authorities and other counterparts for the open and candid discussions and their warm hospitality."
